Operating breakeven point the level of sales

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: operating costs and the profitability associated with various levels of sales. operating breakeven point The level of sales necessary to cover all operating costs; the point at which EBIT $0. Breakeven analysis, sometimes called cost-volume-profit analysis, is used by the firm (1) to determine the level of operations necessary to cover all operating costs and (2) to evaluate the profitability associated with various levels of sales. The firm’s operating breakeven point is the level of sales necessary to cover all operating costs. At that point, earnings before interest and taxes equals $0.1 The first step in finding the operating breakeven point is to divide the cost of goods sold and operating expenses into fixed and variable operating costs. Fixed costs are a function of time, not sales volume, and are typically contractual; rent, for example, is a fixed cost. Variable costs vary directly with sales and are a function of volume, not time; shipping costs, for example, are a variable cost.2 The Algebraic Approach Using the following variables, we ca...
View Full Document

This document was uploaded on 01/19/2014.

Ask a homework question - tutors are online